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What is cost of placing an order?

This topic has 2 replies, 3 voices, and was last updated 10 years ago by John Moffat.

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January 7, 2014 at 3:15 pm #153875
Nakash Comfort
Member
- Topics: 6
- Replies: 5
The purchase price of an inventory item is $ 42 per unit. In each three month period the usage of the item is 2000 units. The annual holding costs associated with one unit is 5% of its purchase price. EOQ is 185 units.
What is cost of placing an order?
Answer: $ 4.49
February 3, 2014 at 10:37 am #154849
Sandra
Member
- Topics: 1
- Replies: 5
How do you get the answer?? Thank you….
February 3, 2014 at 12:39 pm #154875
John Moffat
Keymaster
- Topics: 57
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You use the EOQ formula backwards.
D = 4 x 2000 = 8000 per year
Ch = 5% x 42 = 2.10
So……..185 = square root of ((2 x 8000 x Co) / 2.10)
Square both sides: 185^2 = (2 x 8000 x Co) / 2.10
Multiply by 2.10 and divide by 16000, and you get Co = $4.49
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